Trump’s ban of trade loophole will cut China growth, Nomura says

The decision by President Donald Trump to ban Chinese companies from using a US tariff loophole will hit tens of billions of dollars of trade and reduce China’s economic growth this year, according to new estimates by economists at Nomura Holdings.

Last year, companies such as Shein and Temu shipped US$46 billion (HK$358.8 billion) worth of small parcels to the US to take advantage of the rule that allows items with a declared value under US$800 to enter the US tariff-free, according to Nomura’s estimates.

Tariffs of 10 percent or more and other new costs will slash such shipments, cutting total export growth by 1.3 percentage points and reducing China’s gross domestic product expansion this year by 0.2 percentage point, economists including Ting Lu wrote in a note.

The cross-Pacific trade in small parcels grew rapidly over the past few years, to take advantage of the loophole. China officially reported about US$23 billion worth of these exports last year, according to Bloomberg analysis of government data. That’s almost certainly an undercount, with reports that companies are shipping goods in bulk to Mexico and then breaking them down into small packages to enter the US.

That rise in package trade is one of the factors causing the widening gap between US and Chinese data on the bilateral trade, as the Chinese side is counting at least some of these parcels while the US is not.

Since 2020, China has reported exporting more to the US than the US reports receiving from China, an abnormal gap that widened last year to US$86 billion.

The new tariff is already causing companies to raise prices, with Chinese logistics firm SF International saying Wednesday it would impose a 20 yuan (HK$21.38) fee on all packages shipped from China or Hong Kong, as well as taking a 30  percent tariff deposit.

The cost to fly goods to the US from China is poised to fall as much as 50 percent after the tariff changes, a leading air-freight booking platform said this week.

BLOOMBERG